Austin Bankruptcy Blog


Can Declaring Bankruptcy Discharge Your Tax Debt?

Posted by Sean T. Flynn | Nov 01, 2019 | 0 Comments

If you fail to pay taxes on your earned income to the Federal or state government, you incur tax debt. Unpaid tax debt can result in the individual facing harsh penalties from the IRS or even jail time. If you are unable to bear the burden of your incurred tax debt, could declaring bankruptcy help discharge it? The short answer – yes, it is possible. The long answer however, is a lot more complicated. Continue reading to know why.

Eligibility for Tax Debt Relief

In order to qualify for a tax debt discharge, there are 5 elements you satisfy under the Federal law:

The 240-Day Rule

The “240-day rule” implies that your tax debt must have been assessed by the IRS at least 240 days before the day you file for bankruptcy. This duration may be extended in case of any past suspension of tax collection by the IRS.

Tax Debt Must Be at Least Three Years Due

To be discharged, the said tax debt must be at least 3 years due before the day you file for bankruptcy.

You Must Have Filed a Tax Return

Without filing a tax return on the tax debt you owe, it is virtually impossible to get a discharge. Furthermore, the tax return filing must be at least 2 years old before you can declare bankruptcy on your tax debt.

No Case of Willful Attempt at Taxes Evasion

If the court deemed you to have committed fraud or willfully evaded taxation, then you are barred from getting a discharge of your tax debt.

The Taxes Are Income Taxes

Lastly, only income tax debt is liable for discharge under bankruptcy. Property, payroll, penalties, and any other tax, apart from income, cannot be wiped out by declaring bankruptcy. As you can see, getting a discharge on your tax debt is technically possible, but the conditions are rather stringent and may disqualify quite a few cases of tax debts. However, there is another catch worth discussing that may prevent you from fully eliminating the specter of your tax debt.

The Additional Catch

A discharge does not eliminate any past tax liens recorded by the IRS on your property before you filed for bankruptcy. To sell the said property, you will first have to pay up to the IRS.

Seek the Help of a Legal Attorney

Because bankruptcy laws can be complicated to understand, it is best to seek the aid of a legal attorney who can give better advice you on how to go through with your bankruptcy case, and eliminate your tax debt. For a free consultation with an experienced lawyer, book an appointment with us online or call 512-640-3440.

About the Author

Sean T. Flynn

Biography A graduate of the University of North Texas, Sean went on to get his JD from the University of St. Mary's School of Law. He is licensed to practice law in the State of Texas, as well as being admitted to the U.S. Federal Court in the Northern, Eastern and Western District of Texas. Sea...


There are no comments for this post. Be the first and Add your Comment below.

Leave a Comment

The Law Offices of Sean T. Flynn Are Here for You

At The Law Offices of Sean T. Flynn, I focus on Bankruptcy matters and I am here to listen to you and help you navigate the legal system.

Contact Me Today

The Law Offices of Sean T. Flynn is committed to answering your questions about Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Steps For Filing Bankruptcy, Foreclosures and Repossessions, Divorce Bankruptcy, and Creditor Lawsuits issues in Austin, Texas.

I offer a free consultation and I'll gladly discuss your case with you at your convenience. Contact me today to schedule an appointment.

Austin Law Office
4408 Spicewood Springs Rd., #413
Austin, TX 78759